+ Understanding Canadian Business Chapter 3 Competing in Global Markets

+ Learning Goals 1. Discuss the growing importance of the global market and the roles of comparative advantage and absolute advantage in global trade. 2. Explain the importance of importing and exporting, and understand key terms used in global business. 3. Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in global markets.

+ Learning Goals 4. Evaluate the forces that affect trading in global markets. 5. Debate the advantages and disadvantages of trade protectionism, define tariff and non- tariff barriers, and give examples of common markets. 6. Discuss the changing landscape of the global market and the issue of offshore outsourcing.

+ The Global Market Canada represents a potential market of only 32 million customers. There are over 6 billion potential customers in 193 countries globally.

+ The Global Market Buying products from another country. Selling products to another country. Importing Exporting

+ Why Countries Trade 1. No one country can produce all the products that its people want and need. 2. Nations who cannot produce what they want and need will want to trade with countries who can and have a surplus. 3. Some countries have an abundance of natural resources but lack the technological know-how to retrieve them.

+ Why Countries Trade 4. Other countries have the technology but lack the natural resources. 5. Free trade is the movement of goods and services among nations without political or economic trade barriers.

+ Theories of Advantage Output per Unit of Input Comparative U. S. China Software China Clothing

+ Theories of Advantage Absolute Output per Unit of Input Copper Production Zambia The Rest of the World = Virtual Monopoly = Virtual Monopoly

+ International Trade Examples of Canadian international firms: BCE, Nortel, Magna, Royal Bank and Bombardier. In recent years the small business sector has become more involved in international trade due to improved technology. Foreign travel and immigration often reveal opportunities for trade.

+ International Trade - Terminology Balance of Trade: a country’s ratio of exports to imports. Trade Surplus: occurs when the value of the country’s exports exceeds that of its imports (a favourable balance of trade). Trade Deficit: occurs when the value of the country’s imports exceeds that of its exports (an unfavourable balance of trade) Balance of Payments: the difference between money coming into the country and money leaving the country

+ The Canadian Trading Experience Almost 84% of our trade is with the US. 57% of our imports are from the US Traditionally we have been exporters of natural resources such as energy, forestry, agriculture and fishing. China, India and Brazil are becoming increasingly important as target markets for our exports.

+ Strategies for Reaching Global Markets oExporting oLicensing oFranchising oContract manufacturing o International joint ventures o Strategic alliances o Foreign direct investment

+ Forces Affecting Trading in Global Markets Sociocultural forces Economic forces Legal and regulatory forces Technological forces

+ Trade Protectionism The use of government regulations to limit the import of goods and services in order to protect domestic producers Dumping Tariffs Import quotas Embargos

+ The IMF and The World Bank The International Monetary Fund makes short- term loans to countries experiencing problems with their Balance of Trade. The World Bank borrows from more prosperous countries and lends at favourable rates, to less- developed countries to pay for developing the country’s infrastructure.

+ Producers’ Cartels Producers band together to stabilize or increase prices. OPEC is the most widely known cartel, but there are others for commodities such as copper, rubber, and tungsten. Cartels operate to restrict the free flow of goods and therefore control the prices.

+ Common Markets o Common markets are a regional group of countries that have a common external tariff, no internal tariffs. For instance: The European Union (EU): 25+ European countries are removing tariffs and allowing the free flow of goods and travel throughout Europe by using a common currency (Euro) and a common passport. North American Free Trade Agreement (NAFTA): a 3-way trade agreement including Canada, the US and Mexico that removes trade barriers, and facilitates cross-border movement of goods and services between the three countries.